Impossible Trinity, Capital Flow Market and Financial Stability

Mo Pak-Hung

Kyklos, 2009, vol. 62, issue 4, pages 611-618

Abstract: As observed by Calvo (2002), the world financial market is wrought with systemic hazards that are largely independent to the individual countries affected. Systemic problem requires systemic instrument. Based on the Mundell-Fleming model, we institute a capital flow market into an economy. After the additional market is introduced, countries can enjoy the benefits from opening their foreign exchange and capital markets but at the same time, be free from exchange rate volatility and financial crises as well as retain full autonomy in monetary and fiscal policies for maintaining internal balances. The 'globalization hazard' is resolved. Copyright 2009 Blackwell Publishing Ltd.

Date: 2009

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